Citigroup Earnings: Failure Is Not an Option

Citigroup is focusing on building capital to win the Fed's approval.

NEW YORK ( TheStreet) -- After a dismal fourth quarter and a disappointing result from the Federal Reserve's stress test, Citigroup ( C) cannot afford another financial upset when it reports its first quarter results in mid-April.

So far, analysts are optimistic that a rebound in fixed income trading revenues and continuing improvements in credit quality will assure Citigroup a earnings report that bears a close resemblance to the strong first quarter of the previous year.

According to consensus estimates available on Bloomberg, analysts expect the third largest bank by assets to report an earnings per share of 97 cents on revenues of $19.7 billion.

In the first quarter of 2011, Citi reported earnings per share of $1 on revenues of $19.73 billion.

Analysts will be watching out for any improvements the bank has made in market share in equities trading and investment banking, both of which underperformed significantly in the fourth quarter. Progress in controlling spiraling expenses will also be viewed favorably by investors.

However, management will likely spend considerable portion of their earnings conference call discussing what they believe went wrong with the Federal Reserve stress tests, undoubtedly the top question on the minds of most analysts.

Citigroup was one of four banks that failed to win approval to return more capital to shareholders in the Fed's annual stress tests, delivering a major blow to CEO Vikram Pandit who had repeatedly said that the bank would reward investors with a higher dividend or buyback starting in 2012.

Some analysts believe Citi may have been too ambitious in its request. Oppenheimer analyst Chris Kotowski estimates that Citigroup must have asked to return $10 billion over the next 9 quarters or about 1% of its $1 trillion risk-weighted asset base, based on the difference between the minimum capital ratios before and after the request. That works to about $4.5 billion per year.

Had Citi asked for half of that, Kotowski calculates, its minimum stressed ratio after all proposed capital actions would have been 5.4%, in line with JPMorgan Chase ( JPM) and US Bancorp ( USB) which positively surprised.